Some Problems in the Testing of DSGE Models
We review the methods used in many papers to evaluate DSGE models by comparing their simulated moments and other features with data equivalents. We note that they select, scale and characterise the shocks without reference to the data; crucially they fail to use the joint distribution of the features under comparison. We illustrate this point by recomputing an assessment of a two-country model in a recent paper; we find that the paper's conclusions are essentially reversed.
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- Espen Henriksen & Finn E. Kydland & Roman Sustek, .
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"Shocks and Frictions in US Business Cycles : a Bayesian DSGE Approach,"
Working Paper Research
109, National Bank of Belgium.
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"Two Orthogonal Continents: Testing a Two-country DSGE Model of the US and EU Using Indirect Inference,"
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E2009/3, Cardiff University, Cardiff Business School, Economics Section, revised Dec 2009.
- Le, Vo Phuong Mai & Meenagh, David & Minford, Patrick & Wickens, Michael R., 2009. "Two Orthogonal Continents? Testing a Two-country DSGE Model of the US and EU Using Indirect Inference," CEPR Discussion Papers 7385, C.E.P.R. Discussion Papers.
- Kollmann, Robert, 2009. "Household Heterogeneity and the Real Exchange Rate: Still a Puzzle," CEPR Discussion Papers 7301, C.E.P.R. Discussion Papers.
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